Much is still unknown about whether 2023 will be accompanied by a recession. Inflation is finally easing from the decade-high rates we saw in 2022, but interest rates and the high cost of living are weighing on the economy. Economic spending is down, and many businesses are preparing for a tough year ahead.
Despite the gloom-and-doom economic outlook many experts have, I can rest easy knowing my portfolio is exposed to recession-resilient stocks. Agreed Realty (adc 0.24%), Iron Mountain (Irm 1.41%)And American Tower (Amt -0.87%).
These three dividend stocks can help insulate my portfolio and give me reliable dividend income, no matter where the economy is headed. Here’s a closer look at each company and why I’ll be grateful to own them in 2023.
1. Agreed tenure: Security investment with long-term net lease
Agree Realty is a retail focused net lease real estate investment trust (REIT). With contracts averaging seven to 10 years (or longer), net leases are the most reliable leases in the real estate industry. They work well for REITs because they pass most of the financial responsibility for the property onto the tenant while generating ever-increasing income for the REIT, thanks, in part, to built-in rent escalators.
As of early 2023, the REIT owned just under 1,800 properties in 48 states across the U.S. Its portfolio is primarily leased to institutional tenants. Home Depot, the target, costcoAnd Walmart, along with many others in a diverse mix of industries. The company has a long history of increasing dividends while paying an attractive dividend yield of 3.5%.
This specialty retail REIT runs a recession-resilient operation because it is selective about the properties it owns and leases, choosing Class-A properties in high-traffic metro areas. This helps improve tenant retention while giving foot traffic and exposure to its operators. It also leases to companies with healthy credit positions, further reducing its risk of default in a down economy. Also, Agri Realty has an ironclad financial profile.
REITs have low debt ratios with piles of cash on hand, which can help weather any downtime that may come. It is also expanding rapidly. In 2022, it spent just under $1.6 billion on new acquisitions, further insulating and diversifying its holdings in a downturn. In addition, Agri Realty has a growing portfolio of ground leases, another ultra-secure lease structure within the real estate industry.
2. Iron Mountain: A sustainable business in all things storage
Iron Mountain is one of the few stocks that actually gave a positive return over the past year. This specialized REIT is up 16% over the past year, while the broader market is down 22%. This impressive growth is thanks to the reliable nature of its business.
Iron Mountain helps customers securely store and organize physical assets such as documents, art and collections in warehouses across the United States in addition to digital storage through its data facilities. Storage is a bit of a boring industry on the surface, but it’s a service that’s widely needed. Others, including attorneys, banks and lending institutions, medical providers, insurance companies, online software, and educational institutions, must store physical and digital assets securely.
Some companies do this work in-house, but often it is more expensive and safer to lease this work to a company like Iron Mountain. As of the third quarter of 2022, Iron Mountain served more than 225,000 customers worldwide. The REIT had a strong year thanks to its growing portfolio of data center facilities.
Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and its funds from operations (FFO) — a key metric for REITs that depicts profitability — have grown significantly year over year. Demand for storage will not decrease dramatically in the event of a recession, as its clients will still need a way to safely store their assets. Today the company pays a dividend of about 4.8%, which is almost triple S&P 500.
3. American Tower: This requirement based business should keep growing
American Towers is a communications and infrastructure REIT. The company primarily owns and leases cellphone communication towers and antennas worldwide, but it recently branched out into the data center space to further diversify its revenues and holdings. As of the third quarter of 2022, the company owned or had interests in approximately 238,000 communications sites and 28 data center facilities.
Wireless provider mergers in 2020 have put a lot of pressure on US towers’ revenue growth in the US and Canada this past year. Investors worried about the situation sent the stock sinking. However, its international market is growing at a record pace and is more than making up for losses in North America. Its tenant billings grew 2.6% year-over-year in Q3 2022, an impressive amount given the company’s size.
Its better-than-expected earnings from the latest quarter prompted the company to raise guidance for EBITDA and revenue for the full year. It should be able to continue healthy growth in the years to come, even during recessionary periods. It has continued roll-out of 5G technology to boost its revenue, but people don’t just stop needing to communicate during a downturn.
It provides a needs-based service that has multiple ways to grow and adopt new technologies like 5G. It has ample coverage for debt obligations and dividends, giving it an attractive 2.6% yield while giving it plenty of buffer room to ride out market turbulence.